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Cost Efficiency in the Retail Payment Networks: First Evidence from the Italian Credit Card System

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  • Guerino Ardizzi

    (Banca d'Italia, Roma)

Abstract

In this paper, a parametric cost frontier for the credit card market is specified ("stochastic frontier approach" - SFA) and robustness checks of the main results are performed. The aim is to provide some clues to: the x-inefficiency problem; the main technical characteristics of the industry; policy implications. The Italian case study indicates that: the credit card industry could benefit from significant increasing returns to scale, but the bigger the network (in terms of transactions handled) the more intermediaries tend to veer away from their efficient cost frontier. Moreover, the cost structure borne by firms is strongly dependent on intra-network agreements.

Suggested Citation

  • Guerino Ardizzi, 2004. "Cost Efficiency in the Retail Payment Networks: First Evidence from the Italian Credit Card System," Rivista di Politica Economica, SIPI Spa, vol. 94(5), pages 51-82, September.
    • Handle: RePEc:rpo:ripoec:v:94:y:2004:i:5:p:51-82
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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • G2 - Financial Economics - - Financial Institutions and Services
    • L8 - Industrial Organization - - Industry Studies: Services

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